Considerable evidence suggests that there is much greater economic volatility in developing countries than in industrialized countries. This is partly because the economies are smaller, less diversified, and exposed to greater shocks, which they are less equipped to absorb. Their adjustment processes work less well and more slowly. Markets that function well have the capacity to absorb shocks and dissipate them through the economy. In developing countries, as a rule, markets work less well. Hence, it should come as no surprise that such economies respond less well to shocks. The exact nature of the failure, however, is subject to some contention and may well differ across countries. In some cases, there may be greater price rigidities. In such situations, economies adjust at a macro level through changes in output rather than changes in prices. Moreover, the greater the rigidity in prices, the greater is the burden that is placed on quantity (income or output) adjustments.